tv [untitled] June 15, 2012 8:00pm-8:30pm EDT
panelists for a great session. [ applause ] >> coming up, a discussion about how the u.s. tax code treats u.s. taxpayers and later officials from denver and pittsburgh talk about strategies for promoting their local economies. >> the story behind the star spangled ban dner this weekend history tv. live saturday at 11:00 am
eastern. also this weekend, more from our series from the key figures who ran for president. the contenders sunday at 7:30 p.m. this week with three time democratic president. this weekend on c-span3. >> the tax analysts organization holds a discussion on the tax code and the wealthy. former economist was among the participants. this is two hours. >> good morning. many old friends, many new friends welcome all.
welcome to the latest in tax analyst series in discussion in tax administration. today's topic is taxes and the rich. i'm president of tax analysts. we are in our tenth year of discussions on tax policy. it is great to have you here. also, let me take a moment to explain our process today. i will open things up with brief remarks to introduce our topic. i will introduce our panel of speakers. after that, we will open up the discussion to all of you and we encourage all of you to participate. whether you are seated at the table, wave and i will find you. we are streaming audio of this
event on our website and we will post an audio cast and a transcript there. we will try to reach more people beyond this room. for all media purposes, we are on the record. for that reason, when i recognize you, please tell us who you are. please speak into a microphone. we have hand held mikes and we will quickly get to you. i will moderate the discussion and we will end before 11:00. on to the subject at hand, taxes and the rich. what the rich should pay and why. first i want to thank president obama, house speaker baynor, former top adviser larry summers and former president clinton for
highlighting this topic in the last couple of weeks. personally i'm confused why president clinton's topcomments were so wrong. the way i heard what he said he wasn't questioning if we should raise taxes on the rich but when. there is a lot of debate that confusing me. for example who is rich. is a family who makes $250,000 rich? or are only those who make $1 million a year rich? it seems to be a point of confusion and if you are rich does that mean you should never again face a raise in your taxes? can we surge the deficits in
your debt and how important are therism when it comes to in development in job creation. in my own defense i'm hardly the only confused person in america? here is the most honest thing that i can tell them. i have no idea. and they seem dissatisfied with that answer. here we are, democrats are looking for rich people to tax and republicans are refusing to tax anyone especially the rich. with the parties gridlocked to set policy for taxes. we have a tax code that is temporary with major provisions due to expire at the end of the year and others to expire on a
regular basis. all of that hurts our economy over the long-term. the thing that i'm most confused about are why our elected don't seem to care all the problems with this temporary tax writing is creating. we have a wonderful panel here today that i'm sure will help clear up my confusion. i will introduce them in the order in which they will speak. joe thorn dike is director of the history project. len berman is the professor of public affairs of bob maxwell schools and bob carole. all three of these men have books. here is bob's book. len has a book coming out. i think i have the flier here.
yeah i have it here. taxes in america what every one needs to know and joe has a book coming out and the title will be -- >> "their fair share". >> it is only a rue martmor tha g getting a commission on that. >> will you start us off? >> i promised that book at so many events and it is still up coming. it really is some time soon i hope. i don't know that i'm going to clear anything up. i'm going to embrace the confusion. but i'm going to make a few points. the first is obvious. when it comes to taxes, the tax politics, the fairness matters. you can see that cred-span is h.
tax fairness is always the hot issue. what is less obvious but just as true is tax fairness is important to tax policy. every major change in the federal system i mean enduring change, regime change the kind of change that lasts for decades in the last 200 years has been prompted by an argument of what is fair. and you know, this was the time when they transformed the income tax from a class tax to a mass tax. they changed it to a tax that all americans paid. there was a bargain that under laid this change. we are going to ask you to pay a lot of money. we are going to start asking you
to pay it now and a lot of pay roll taxes and in exchange for that we are going to tell you that the rich people made that too. it lies at the heart of what our current tax system is. opinion polls have shown strong and consistent support for the notion of general taxation and who knows what that actually means. the thing that drives a lot of conservatives crazy is that they are arbitrary in operation. you can win a lot of agreement from conservatives from the idea that the structure is a reasonable one. conservatives often object to tax increases and it is a great
quote to economists, that the moment you abandon -- you are at sea without a compass and there is no folly you may not commit. there is a statement of truth and there is not much doubt about that. of course the existing rate structure, if we are complaining about a tax increase. the existing structure is just as arbitrary. there is no scientific objective to talk about rates. every structure is a matter of opinion. what sort of structure do we use? some sort of added tax that choice of taxi ining instrument arbitrary. but on the issue of fairness
there is no way to sort it out. the starting point has to be an admission that we are making this up we are shooting from the hip. we can develop all sorts of sheer theories and they have done so about sacrifice and you name it. no one i don't think has come up with a convincing justification for any particular definition of what is fair in tax policy. tax fairness is a social construction. so let me finish with a quick destruction of tax fairness. i think it is fair to say, that americans have tried to tax the rich with weird taxes with things that only rich people buy like snuff.
they have tried to do it with an income tax in the civil war and again, it goes away and comes back again. every time it is an effort to make the system more fair. it is not about redistributing wealth. american history doesn't lend a lot of support to taking money from people because they have too much. you can't talk about fairness that is crazy. that doesn't help us at all. it is the only thing that matters. whatever tax reform we choose
going down the road. it will be the key element in moving the debate. how much is enough and what is the right number? i think that is what politics is for. thank you, joe. >> thank you, chris. i should point out that my book that isn't going to be coming out for a while is with joe slimroid. the question is, should taxes go up on the rich. they are going to have to go up on everybody. they are at their lowest level since 1950. that was before the high wway system and scores of others relay rely on. we have promise d that medicaid which payed for half of nursing home care and the population is
aging. the demands on the federal government are going to be unprecedented incoming years it would be absurd to argue that the wealthy shouldn't pay more. and as joe pointed out, there is no we've got two economists on this panel and xhikts doesn't tell us what the right level of progressivity is. it becomes a trade off between efficiency and progressivity but the thing that is left out, how do you value the well being at the people at the top compared to the people at the middle and the bottom. polls show that most people favor the idea of a progressive tax system. recent polls think that high
income people should pay a larger share. in terms of what the right elevl is, it is not about punishing the rich. i like rich people. we wouldn't have much of an economy without rich people. they are generous. they support universities. but the question is, how you determine what people at different income levels ought to contribute to paying for the government. in a free market system. f progressive systems can limit the achilles heel for free enter price. i would argue that it is exactly the opposite. if we can't figure out a way to
mitigate the inequitities of our capital system where a large and growing share of income goes to people at the very, very top, that, that system isn't sustainable. people vote on the rules and if they think that the system is rigged in favor, that is going to change. economists know that taxes and tail economic cost. the notion of dead weight cost. two issues, one is that higher tax rates are not the way we want to raise more revenue from higher income people. there are things that we might do outside the tax system might entail higher costs.
for example putting higher restraints on the system. other restricts on compensation. there is a question on whether the wealthy are overtaxed. and over that -- from 1979 to 2007, the share of income more than doubled. from 10.5 to 21.3%. while the tax rate fell by more than 30% from 37% to less than 30%, during the same period the share of income going to the middle 60% fell by a similar amount, there was a shift in income to the middle to the top. the tax burden also fell but by less. capital gains tax rates have been in the news.
the buffet rule, capital gains tax rates are at their lowest level since the great depression and some, one question is, why are their such large income des parities and some imply that it is a matter of effort and that the rich work very hard. clearly that is not the case. there are some people that report because they don't work very hard. and their incomes have stagnated. if you look at a set of charts that were handed out at the beginning. one of the slides shows the median earnings going back to 197 0rks 1974.
they have been basically flat. the economic gains that have produced huge incomes, the top 1% and i'm sure a lot of you have seen the figures before, they declined a little bit in the recession, but they were through the 1960s, 1970s and early 80s. incomes at the middle have been flat lined. now the question is, what do you do about that? and there is the question about how much access people that different income levels have to those income levels at the top. the children of rich parents are more likely to grow up rich than
the children of lower income people. they live in safer communities and have better xhiconnects to p them succeed. it can mitigate its effects. but progressive taxation helps. and we should care about extreme inequality even if we didn't feel compassion for others. economies grow slower with less skewed contributions. it includes other provisions and it may be that workers are less productive because they feel ailnated. there is an issue in terms of
what is the cost of higher growth. people often cite president clinton when he took office. president bush cut taxes and the economy didn't do very well. ronald reagan was convinced to race taxes and he was concerned that the deficits would entail huge economic costs. if we can't figure out a way to raise enough revenue. deficits are going to entail more costs by raising interest rates and making it harder for people to buy homes. finally, the issue isn't whether we should necessarily raise tax rates on higher income people and the best way to do that, i
think most economists would agree to broaden the tax base and eliminate most of the preference items which are skewed towards people with higher incomes to eliminate as many preferences as possible so it is possible to lower tax rates as the same time as you make them more progressive. the b bibartisan program propos the same thing. and with that, i think i will pass it off to bob. >> thank you. bob? >> it is a real pleasure to be here chris. i appreciate the opportunity to participate in the discussion. it is nice that tax analyst is able to put on these events and
have interesting and deep policy discussions. another thing i ought to say, nothing i say is meant to represent ernst & young. i was going to end with a particular point the same point that len ended with. and i think that a discussion of whether we should have a more progressive tax session and the focus on tax rates is where i take issue with that discussion. the focus on tax rates is problem attic because the graduated tax rates schedule cob tr contributes to the burden but it is not a determining factor. as the president's own fiscal
commission, known as the simpson commission, you can lower tax rates substantially and broaden the tax base and replicate the distribution of the tax burden. as we carefully weigh what we want the distribution of the tax burden to be, we need to be understanding of what the costs come with on high income taxpayers. i think i really have no idea what the right distribution of the burden is and what they have to be. that is something in my own view is best left up to people who are elected to office and politicians.
one thing i will say, however, is that i do know that the current tax system is progressive and some of the charts that len included high income people pay a larger share of taxes and the top 1% pay 36% of individual income taxes you don't have -- if you look more broadly at income taxes, you still have a substantial system. that is something that should be a starting point for the discussion. in a sense, the discussion on whether we should tax the rich more, gets at the core of some of the conflict of the tax reform debate. usually, we are talking about a policy objectives and a system
that is more fair whatever that might mean and today, more issues that have added to that debate. having a more competitive system that enables us to compete in a mark marketplace and having a system that is more stable. to provide taxpayers with sernl ti but going back to those core issues of tax reform. the two objectives of pro growth are often at odds. it is important when we talk about fairness to recognize that some of the policy remedies come with economic costs. this is a point that len made quite clearly. higher rates come at a economic cost the welfare loss associated
with higher taxes related to the square of the tax rate. as the rates get higher the drag on the economy gets much, much, larger. relative to the square of the tax rates. to put this into perspective. i have a long career looking at the treasury department and i was involved in analyze iing changing tax rates. when you raise tax rates on high income taxpayers, one way to look at it is what does the revenue take to the government? when they estimate raising the top two rates, they would estimate the revenue gain from raising the top two rates 25% of
that gain pick up would be lost due to behavial responses. that gives you a sense from the government's per spspective the cost a sense from the policy-maker's perspective. the effect of high rate s greater for higher income people than lower income people. another aspect of rates is what are they taxing? they are taxing the return to labor and capitol. they have a great affinity for consumption costs and most are the return to capitol savings at
all. in the interest of fair neness, just a released through aei press. on june 4th. available through amazon.com. in any case, taxing capitol income. from taxing capitol income. one of the arguments is there is a perception that a lot of it the returns are received by higher income taxpayers and you out to ininclude the return to capitol in the tax base to achieve that on objective. however, taxing capitol income comes with a cost. it is a drag